Todd Sheets, Part Two

 I spoke again with author Todd Sheets about the American Economy and it's financial history.
We finally got to discussing his book, 2008: What Really Happened.
among other things like the AI and Automation Revolution.

After leading Raymond James' real estate investment banking practice, Todd retired to focus on investing, economic history, psychology and writing.

Your American Heritage 5 3 2025 Todd Sheets Part 2

The transcript is below.

Ed Bonderenka(01:01):

Well, welcome back to your American Heritage baby. My name is Ed Bonderenka and I am a white Christian, cisgender male. You got that right lady. Producing the show is the guy that answers the phones, warns me commercials to come, puts the guests online, finds answers the questions we ask and that’s Derek Stone, who is of course the host of Stone Cold Sports Truth Sunday's at noon 30 right after my friend Sean Todd hosts the intersection at noon. The intersection is not your normal fluffy Christian show, so listen to both of those guys Before Operation Freedom with Dr. Dave Janda comes on at two. People all over the nation and internationally, listen to Operation Freedom, besides this show.
You ought to also listen to the whole Saturday lineup of Abolitionist Round Table at nine, Trigger Talk at 11, and then this show at one. Then for a calming cultural influence, stay tuned to Speaking of Art with my friend Ed Hoffman at three.

(01:54):

So this show is on Spotify and Apple Podcasts. You can and you should subscribe. Look in your heart. Look in your heart, you should subscribe. Boost the signal, be a Paul Revere and get the word out.
What can you do to preserve our American heritage? We said it before, I'll say it again. It's worth saying. Get organized, preferably in a good church. Educate your neighbors and friends. Support those who take the battle to the enemy. Support those who are running for office that support good and godly values and then hold their feet to the fire.
And then we arm ourselves Intellectually. We learn the facts for ourselves and we make wise decisions that way. And we can explain why we act the way we do to others.
And then arm ourselves physically get a gun, learn to use it. Be prepared to defend yourself, your family, and your nation.

This happens every day. You don't read about the news with people defending themselves and their neighbors, even strangers.

And then arm yourselves spiritually. Once again, find a good church. Join with others in prayer For our nation this week, I said before was National Prayer Day. That's a national event.
Let's pray. Father, please lead us and guide us as we seek to protect this nation. Please help us to protect our heritage and the rights that you have given us from evil, conspirators, thieves, traitors, tyrants. Please bring these enemies of good and sound morals to a place of repentance. And if they won't repent, please remove them from their position. Amen.
Well, joining me today is Todd Sheets again, I should say, back by Popular Demand because I got to tell you, the last time we had Todd on was how long ago was, oh, it was last Saturday.

(03:29):

The last time we had Todd on. I got a lot of great feedback from what a great show it was. Once again, it wasn't me folks. And Todd is the author of the substack newsletter on Wealth and Progress and avail yourselves of that. Very, very informative. And as of now, it's free. Okay, first one's free and that's on Substack free. And then he's author of the book 2008, what really Happened, which was what we were going to talk about the last time we had Todd on, and we didn't get around to that. We started out with a financial overview of American history and how we got to the conditions that led to 2008. And then ultimately today we hope to do that. And I want to tell you something fascinating. Everybody talks about AI and what effect AI is going to have on the economy, and I wanted to review the show that we did last week.

(04:25):

And so what I do is I upload the audio of the show to a website called rev.com, and then they give me back a Word document that's pretty close to word for word and not who's speaking, but speaker one, speaker two, speaker one, and I can change all that and I can go in and fix stuff and put it on the blog so people can read the show if they don't have time to listen to it or are audible challenged. The other thing it does is give me an outline of the show. So that's really cool too. So I can look at the outline and I can say, yeah, these are the topics we talked about. And so now I have an outline and we won't have to repeat ourselves, right Todd? So the things that the AI and the thing I want to point out as we talk about AI and the economy, do you realize how many hours of productivity that gave me, just being able to review the topic, have another source, review it without having to pay them any money either, and then give me the high points or to do a transcription where I don't have to type out every word and present it.

(05:37):

This is phenomenal. This is a great economies of scale, so to speak, and maybe Todd would like to speak to that for a bit, but it's one realization of why AI is going to affect the economics of this country because it's making people more efficient. Todd, did you want to speak to that real quick before we went into the rest of it?

Todd Sheets (05:58):

I'd be delighted to because there's been a lot of, as we talked about with other issues last week, fear mongering out there about what this will do. Will it take jobs away? Will it leave huge parts of the system unemployed? And I'm completely in agreement with what you just said. This is going to be an extraordinary productivity enhancing tool. It has the potential as some people have expressed to be a new wave of the industrial revolution. And if we just go back and think about that for a moment, we were talking about history last week quite a bit. In the early to mid 18 hundreds, something like 90 to 95% of the country was engaged in farming for self-sufficiency. The clothes that they wore were made by one of the people in the home ready-made clothes weren't a thing early in the 18 hundreds. And so Go ahead. Yes.

Ed Bonderenka(07:04):

I just want to really briefly interject A number of years ago, maybe 20, 30 years ago, I was reading about the effect that the singer sewing machine had on women's lib. All of a sudden, women were not stuck in the house making clothing for their families. They could use a sewing machine and hold cloth to do it, and it freed women up to cause the trouble that they are free to cause today.

Todd Sheets (07:31):

Yeah, I mean that's a great point because these things aren't just economic, they're also social. And so something like at that time it was women who were in the homes and sewing and the clothes for the family, and all of a sudden you could buy ready-made clothes at a fraction of the price made in the factories that were doing that kind of work. And then that did free women up to go out and expand the possibilities of their lives. And I think you hear all these things about the progressive era bringing an end to child labor. I don't think that's true. My family one side was a long line of farmers. They came over from Germany, they were farmers in Western Iowa. There was a reason why my mom had eight brothers and sisters. That's because every one of 'em worked on the farm. And it was a way for the parents to have helpers out there in the fields and that kind of thing and doing all the chores that were needed.

(08:36):

And so if we hadn't emerged out of that environment, child labor would still be around. What enabled an end to child labor was this movement to the factories, the industrialization, the wealth that created. And then as that wealth gets created and people can make more money with less time, you can support a bigger network, you can support your family or even more than that without everybody, including the children having to work in that kind of thing. And so just to tie another little bow on this, I think one of the great stories about all of this was Henry Ford in the early 19 hundreds, the automobile was thought of as a rich person's toy. They were very expensive, $2,000 or so. They weren't very reliable, they weren't very efficient, nobody could afford them. Henry Ford had this idea of making a car for what he called the universal marketplace, and he designed the Model T.

(09:45):

He set up the factory assembly line, which was being used in some other areas like clothing as well. But he took it to a whole new level. They drove the cost of the Model T down from over a thousand dollars in the early 1910s to under $300 roughly 10 years later. And as they did that, and as it became more mechanized, it created this enormous amount of wealth. All of a sudden it became a necessity and we were building roads and people were buying these. And like you said, also, it also changed life socially. People could travel to see relatives that they couldn't see before and that kind of thing. So it greatly enhanced not only wealth and income including of working class people as this happened, wages at that point in time were around two to $2 and 50 cents a day. And at one point the Ford factories came out with the announcement of the $5 day.

(10:49):

They doubled wages in overnight and it totally transformed the working class and built the middle class in this country. And so I really believe we are potentially on the verge of another era like that with things like AI and the technology revolution that we're experiencing right now. And we don't know what the jobs will be. Just like in the early 18 hundreds, nobody thought, oh, well, all the people that used to be working on farms will be working in clothing factories and then automobile factories, nobody, even those products of the automobile hadn't even been invented. Airplanes hadn't been invented, motion pictures weren't invented. So it's very easy to visualize the fears about what might be lost. It's much harder to see what might be created as this wealth creates more buying power. And as the nature of these bottom up free market economies, consumers through millions of purchasing decisions are then sending their signals up to, well, this is what we want to buy with this newfound income and wealth that we have. And then that sends the messages to the marketplace, well, this is what we need to get people working on so that we can fulfill these demands in that kind of thing. So yes, I'm very optimistic about all of that.

Ed Bonderenka(12:15):

That's interesting. It's also interesting, we'll get to your book…., Henry Ford. I had two different thoughts. One was I just recently read about Model Ts and how now people, collectors are trying to be period-correct with a model T, make all the serials match and make sure, oh, you had the right brake pedal on the right year. They didn't supply that brake pedal. And by the way, that eight track was not available on that model T at that time. It did not have air conditioning, so you got to rip that out. And other people are pointing out in the thirties, there were so many Model Ts that had gone to Model T graveyards that anybody with almost no money could go to. When I was a kid, a friend of mine went to the junkyard and he bought himself a Camaro that had been involved in a crash.

(13:15):

It was totaled out and he took it home for almost nothing and put it all together with a bunch of other parts from the junkyard. And he had one of the nicest cars of our group in high school, but he and his brothers built it. People were doing that with Model T's, and they didn't care what year that gas pedal or that taillight came from. They're just throwing something together to get a working car for $5. And that in itself did a lot for the economy because people who couldn't afford a new car now could afford a used car or a car they actually threw together themselves because they didn't have to worry about not getting the chip for that engine. It wasn't available, or the five mile an hour bumper or all the other regulatory, the catalytic converter, all the other regulatory items that we put on a car that makes the cost go through the roof.

Todd Sheets (14:04):

Yeah, I think those are interesting observations. And to me, the thought they bring out when you talked about back in the 1930s is it also gets back around to this idea of when these companies become big and successful, do we need to step in and somehow regulate them, send the antitrust regulators after them and that kind of thing? And I think generally the answer is no. And the exception would be the cases where there is some type of government privilege or political privilege that's been extended, which would be like, we can come back to this later. That would be Fannie Mae and Freddie Mac, the housing agencies that came to dominate.

Ed Bonderenka(14:53):

Yeah, as I said we're headed to your book by that. That was good. That's real good. We're headed towards your book, federal regulatory agencies.

Todd Sheets (14:59):

But let's go back for a second to the thirties because there's a fascinating thing that happened with Ford. They dominated the market throughout the 1910s and then into the 1920s. But then what started to happen is after helping lift up all these people into a much better standard of living and creating a lot more money for them to spend, the market started to shift in ways that Ford didn't anticipate. And he stayed with this idea that we're going to have the lowest cost, most efficient, best value for the money kind of car. And GM came in and they had this idea, well, we've now got wealthier people in this country at all levels, and they care about things like styling and color. The famous thing on Ford on the Model T was you could have it in any color you wanted as long as it's black, right? You were laughing before I even finished it, right? But Alfred Sloan at GM recognized people want different colors, they want styling elements, and as they're wealthier, they'll be willing to pay for those. And so it wasn't government regulation that reigned in this market position that Ford had accumulated. It was competition. And even the largest and seemingly most dominant companies are ultimately over time subject to the competitive regulation, natural regulation of the marketplace. We've seen this later.

(16:37):

Walmart took over the corner grocery store business for a while. They came into these towns, it was so much cheaper, the local markets couldn't compete. That was a tough element for some people. I understand that. But we also have to look at how much that lowered cost for buyers in many of these small communities in that type of thing. And the amount of savings that were available, well, everybody would've thought Jesus, Walmart, nobody will ever be able to compete with them. And then Amazon comes along and all of a sudden they do it a little bit differently and bring another level of savings. So if we let these competitive markets go, ultimately they provide their own regulation in the vast, vast majority of the cases. Not always, but in the vast majority of the cases. So if you go back to Adam Smith's thinking about all this, a light touch of regulation is a good thing, but we don't need to go much beyond that.

Ed Bonderenka(17:36):

Okay, excellent. And so when I was doing show prep, oh, by the way, let me give you the outline first. We talked about the established, well, the AI says, we talked about the establishment, federal Reserve and then the Great Depression, and then Sarbanes Oxley, Smoot Hawley, boy, I'm getting ahead of myself here. And then post World War 2, recovery, the Marshall Plan, and then Modern Economic Challenges. And then we went on to some degree China and tariffs. And your book is on what happened in 2008, and I think there's some pretty big lessons for what goes on there. And we're talking about regulation, and in my mind, I was conflating Exxon or Enron, I'm sorry, Enron, all these odd words for corporations, Enron with the economic collapse in 2008, probably because of their proximity in history by a few years as I telescope back looking back. But actually Enron was like an early 2000 or something like that, right?

Speaker 1 (18:44):

Yes.

Ed Bonderenka(18:46):

And that resulted in some regulation, Sarbanes Oxley, which a lot of people see as a throttle on the economy to some degree. I know there's a lot of things all of a sudden I couldn't do in management in the business I was in the businesses I worked for. You had to watch what you said or where you said or how stuff information was shared, and it became a challenge and I thought it was actually throttling business at some point. But then we went on to what happened in 2008 with the collapse there of the economy. And so I've given you some talking points there. Would you relate those two instances to each other?

Todd Sheets (19:28):

You mean the Enron collapse? Yeah, actually, there's a point I go through in the book. It plays a very interesting role in the development of the housing bubble. Not necessarily a causal role, but an important one. And so let's just step back for a moment and from a big picture perspective, I think one of the problems that's resulted from the housing bubble is that we still don't really understand nationally what caused it. The primary explanation that still is out in the marketplace is that it was caused by a gradual trend of deregulation that started in the Reagan years, went too far by the two thousands, it let the markets run out of control, and then it led to this housing bubble. But as I go through, I go back in the book, I go through a great deal of detail, which I won't bore everybody with now, but that shows that after basically a hundred years of relatively consistent and predictable housing prices, I mean, these are the reasons why people thought of as a home as the cornerstone of building wealth for a family over time, right?

(20:42):

First thing a young family does is buy a home. You buy it with a fixed rate long-term, you hold it for years, and it helps build wealth in the family as it goes up in value, and you pay the mortgage down gradually over time. Well, that suddenly changed, not gradually as the gradual deregulation theory implies, but it suddenly changed in 1998 when all of a sudden housing prices significantly lifted off from the long-term trend. And what caused that is in 1998, Fannie Mae and Freddie Mac, which are also known as government sponsored enterprises or GSEs, because they have special government privileges that were extended to them in the late sixties and early seventies, and that enabled them to grow from a minor role in the housing markets to a dominating role so that by the nineties, they were financing roughly somewhere in the mid 40% of all the housing loans in the country. And what the change that had happened was all of a sudden we had these two entities with political privileges who decided to put those privileges to work in massively expanding their mission to provide housing to the low and moderate income buyers.

Ed Bonderenka(22:07):

You're not going to go political there, I take it. There was a certain political party, a certain president that's gotten blamed on the Community Reinvestment Act. Am I getting ahead?

Todd Sheets (22:19):

Yeah, yeah. No, I mean this is a shared thing. I mean, this started in the nineties under Clinton, but it was continued in the two thousands under Bush also, although some of the driving force in the housing bubble changed in the early two thousands. But what happened in 1998, the very year that housing prices took off is that Fannie Mae and Freddie Mac after amassing almost half the marketplace, then suddenly went on a massive expansion of their mission in that year, their growth rates doubled, and I go through a bunch of analysis that show the doubling of their growth rates and all of a sudden them pushing more money into the housing market is what fueled what I've called the liftoff phase of the bubble. That went for four years. Then interestingly, when Enron collapsed in the early nineties, it kind of shook up the accounting world.

(23:19):

I was a CPA for a while. I was long gone by then, but it made the regulators think they needed to impose some new laws like you were talking and restrictions and so on and so forth. And it also made because Arthur Anderson, the Houston office of Arthur Anderson basically caused the entire firm to collapse. It was the largest public accounting firm in the world. It's the one I had worked with for a few years in the early eighties, and it collapsed and all of a sudden all the accounting firms realized we need to start looking more closely than we have been. And so what happened is Fannie Mae or Freddie Mac had to change their auditors and the new auditors in this new environment scrubbed the books more closely and said, Hey, we think you're manufacturing these earnings. They're way too predictable. And so there was this kind of moment where that actually slowed the growth down a little bit.

Ed Bonderenka(24:21):

We're going to have to continue that after the break. Derek faithfully is telling me we have 30 seconds left having some music started, and of course we're talking to Todd Sheets, the author of 2008. What really happened, and we actually are talking about 2008 really happened this time. So come on back if you want to hear more, I welcome back to American Heritage, talking to Todd, the author of 2008, what really happened, and also, Todd, tell us the name of your substack again, please.

Todd Sheets (25:06):

Yeah, the Substack is on Wealth in Progress. You can go on to Substack and search either for my name or the newsletter. You do have to sign up in Substack, but then once you do, that's free and my newsletter's free and it's going to be free for quite some time. Also, my goal is to build a pretty big audience before I think about doing anything, maybe monetizing it some ways down the road and that kind of thing.

Ed Bonderenka(25:31):

That's good. That's good.

And so we've been talking about been about regulation, the regulation of the free market and then government regulation. We were talking about the lead up to the bubble, and one of the things we were talking about was Fannie Mae and Freddie Mac. Two obscure terms to me. My mom used to know them when she handled real estate. I remember hearing those names. She was a broker. And then this bubble came up in 1998, and I'll be honest with you, I read a lot of conservative news and a lot of 'em were pointing towards political pressure from the Clinton administration at that time to on Freddie Mac and Fannie Mae to increase mortgages to what they call the subprime market, people that normally wouldn't qualify for a mortgage. And they saw that as a civil rights issue and almost like affirmative action, getting a bunch of people into colleges that they're not equipped to attend. It kind of led to a disaster, unless I'm wrong in that. And would you please comment on that?

Todd Sheets (26:36):

No, my guess is I don't know exactly, but I think the initiative probably started at Fannie Mae and Freddie Mac, and then they were able to convince their overseers in Washington, which included both Congress and the regulatory body. Congress had set up that this was a good thing the Clinton administration signed on, but then again, the Bush administration did too. There's quotes from Bush out there talking about this great thing that they're going to do by increasing home ownership for low to moderate income communities, including the Hispanic community, which had been very supportive for him. So this was very much a bipartisan kind of mistake where I think, and look, I think even the people running those organizations, I do a profile of Franklin Rains who was the CEO of Fannie Mae at the time. This was a brilliant guy, had gone to Harvard. He came from a low income family out in Seattle.

(27:35):

He had this big belief in the mission of extending home ownership because at a time when his dad was laid off and on food stamps, he had gone and bought a foreclosed home for nothing just to get the lumber and then rebuilt a home by hand in a different place. And that had been a source of wealth for their family. So I think this was a well-intentioned, very bright person, and they all were acting. They all had this belief that pushing home ownership would have these wonderful outcomes because we had a long history of that. But what they didn't see was when you change the market dynamics through these government interventions, the markets start to act in very different ways. And the internal checks and balances that had been there for the previous a hundred years were now gone because Fannie and Freddie were so big. And then because of the actions that the Federal Reserve took in the early two thousands as well.

Ed Bonderenka(28:37):

I want to give you an example, personal example of something I observed during that time during the bubble, frankly, just before everything burst, my son was in real estate. He was trained in real estate, and then he opened up his own business. He was doing landscaping and construction mostly to other realtors to improve a product that was on the market for sale. And he had a good business going, and he had a friend that I was aware of, my son's friend, and they're approaching me and asking me do I want to refinance? Do I want to buy a house? Not my son but his friend. And I'm hearing about everybody that my son's friend, who I would not call, trained in financial matters at all. He's representing, he's a mortgage lending representative now with very little education in that field. And I thought, something's really funny here.

(29:39):

How can he be out here making loans to people who I can observe, can't afford these loans down the road? It reminded me of when the economy tightened up quite a bit ago and interest rates went up, I think under Reagan, and all of a sudden people were buying, what do you call those? Not fixed rates, adjustable rate mortgages at a low rate, hoping that in five years things will get better and they can afford that mortgage. They're hoping interest rates will come down by that point to where they can't, won't lose their home. And then they did. But that's a lot of what was going on. Is that right?

Todd Sheets (30:24):

Yeah. I mean, Ed, you have this great way of naturally leading me into the next segment just perfectly. So Fannie and Freddie drove the first four years of the housing bubble. They're primarily providers of long-term fixed rate mortgages. They're pushing all this money into the market, which causes housing trends to increase. And then the enormous mistake that the Fed made in the early two thousands was after the dot-com bubble collapsed. This is the late nineties tech stock mania, which the Fed played a big role in. We don't have to get off on that tangent right now. But then when that collapsed in early 2000, the Fed was very concerned about the impact that would have on the marketplace. So they stepped in and they pushed short-term interest rates down to historic lows and the mistake that they don't know that they're making, and we know that that's the case because they later blamed or continued to blame the housing bubble on other things.

(31:22):

But I show very clearly in the book this is what it was, was they drove the cost of these short-term arms, which you mentioned adjustable rate mortgages below the rate of housing appreciation and the way finance works, there's a series of examples I go through in the book is if the cost of financing the home is below the rate that it's appreciating at, it greatly magnifies the returns on the down payment that you put in the home. So if you buy a home with a 5% mortgage and the home is growing 5% a year, your equity investment will grow about five. But if you buy one with a 2% short-term mortgage and the home is growing six or 7% a year, you massively increased the returns. And this is the thing that drew everybody into what I call the acceleration phase of the bubble, which ran from the early two thousands to the mid two thousands.

(32:23):

And so the first phase was driven by Fannie and Freddie pushing money into the market. And then the second phase was driven by this dysfunctional dynamic that the Fed created, which was this incentive to buy a home with an adjustable rate mortgage, and this is what you're talking about your son's friend. These were the liar loans, the no dock loans, the very low down payments that you could barely afford kind of thing. And you can clearly see I go through the numbers there again, now the demand is coming from the marketplace for these short-term loans and that's causing this second phase. And you can see the increase in adjustable rate mortgages in that second phase was enormous. And again, I go through a bunch of numbers that show it clearly drove that phase. All of this goes on until about 2006. I'll make one more quick point here.

(33:24):

Many people, most of the books, some of the movies that are out there have focused on that craziness of that period, which everybody remembers as kind of like this shows that it was markets run amuck and we needed regulation and that that's the problem. That's kind of where this general deregulation theory comes from. But what you have to ask yourself is why then and not at some other time. If the housing markets were susceptible in and of themselves to this kind of craziness, then why don't we see periods like that in the eighties, seventies, sixties, fifties, forties, thirties? And we don't, the reason it all happened at that point in time is because first Fannie and Freddie triggered it and then the Fed accelerated it. And those are the precipitating things that caused all this lunacy to occur. So that's not to take away blame or to say that these mortgage companies or these big institutions didn't make mistakes and those kinds of, they did and a lot of bad practices developed, but they happened at that time for these reasons and not previously.

Ed Bonderenka(34:41):

Would you say some of them acted criminally or if not criminally, marginally criminally like, we're going to take advantage of this and we'd know what's going to happen, but we're going to get in now.

Todd Sheets (34:53):

I'm sure we could find instances of that, and that's kind of the frustration that was expressed in the Occupy Wall Street protests that came out later in that kind of thing. And I understand that I don't think it was exorbitant because in many of these institutions that went down, some of which went bankrupt, others of which went down dramatically, the executives in most of those companies owned huge amounts of stock. We're talking about people who lost hundreds of millions of dollars when Bear Stearns failed or Lehman Brothers failed. And so I'm sure there are instances of criminal or unlawful activity. I don't think that that was really what was driving it. I think what was driving it were these dynamics where it seemed like there was so much easy money to be made in a market that everybody believed would never collapse on a national basis because it hadn't happened before.

(35:57):

And everybody missed first the fact that Fannie and Freddie had gradually become the 800 pound gorillas that unlike any previous time were capable of driving the whole market all the way across the country. And then second, the Fed through its control of interest rates, which also affects every market in the country simultaneously made this unique combination of mistakes. And then for a few years, it was just like, okay, it's easy money. It's like playing in a casino where it's heads, I win tails, you win, everybody wins kind of thing. And all of a sudden it collapses.

Ed Bonderenka(36:35):

(sarcasm) So these influences of the federal government that affected what happened, this was the unseen hand of Adam that Adam Smith speaks about, right?

Todd Sheets (36:46):

Well, yeah. He talks about, it's a little bit, let's just manipulate that a little bit or look at it from slide. His idea with the invisible hand is that the invisible hand will naturally guide markets in a way that produces the best outcome for the individuals within the market. And that even though the individuals aren't trying to create the best outcome for society as a whole, that will be the natural result of their activities. And so that gets back to this idea that we could have two approaches. You have a top down approach where there's a small body of people, maybe it's the Communist party in China or the Soviet Union, or even the people at the Federal Reserve setting interest rates, even in a relatively free market economy like ours. They decide what things should be and then they impose that on the rest of the system. Or you take the other approach, which was the Adam Smith, and you say, we let the people decide. And so I'm not sitting in Washington trying to decide what you should be buying and how much you should be buying of it, and therefore telling somebody else that they need to build this factory to make these things that I think you should be buying. You make the decision every time you go out and you spend your hard earned money, and that sends these signals, which guides the markets through this invisible hand.

Ed Bonderenka(38:18):

But isn't that Now you've got me going because isn't that what we're doing with tariffs? We're telling people you build that here, not there because it's better for us. Now you've got me and anti tariff moment material.

Todd Sheets (38:37):

Well, that's understandable. There's plenty of anti tariff sentiment out there, so I'm glad you mentioned that. Look, I think a couple of things. I think we have to separate the use of tariffs into at least two categories. And one is China, and I think we talked about this last week a little bit, but we've extended an economic olive branch to the Chinese Communist Party and the people, and unfortunately the communist party has weaponized it and used it against us, and they've exploited the low wages in their population and through a number of other measures, including unfair tariffs and unfair trading practices to enhance the power of the Communist Party. And instead of becoming a trusted trading partner and a global ally, they've become a belligerent country on both of those fronts. And so I think that's one area where we have to address international issues with trading policies, which is effectively like what we did with the Soviet Union.

(39:44):

That economy was isolated throughout the Cold War, and that's the reason it ultimately couldn't grow as fast as ours. And it's the reason we could win without having to gauge in a military conflict with 'em. So then the second area of tariffs is this friends and allies category. And I do agree the messaging could have been better there, but we also are still sitting here with unbalanced trading relationships that are an outgrowth of what happened in World War ii. And so I agree, the ideal objective to me for these tariffs with our friends and allies would be to enter into negotiations that creates a level playing field. So we're not sitting there like we were until very recently with Germany charging four times the tariffs on our cars that we're charging on them, or with Japan who has all of these trade restrictions that makes it virtually impossible for an American company to do business in Japan while we open up the doors and say, come on in, set up your business and go to work kind of thing. And so I think, yeah, the best thing is to set those on a level playing field and not to try and direct the benefits into any particular sector like manufacturing or anything else, but then let the natural evolution and growth of the economy dictate where the new jobs are. And all we're trying to do is make sure our workers in this country have at least a level playing field to benefit in this new round of growth. So we're competing on a level basis kind of thing.

Ed Bonderenka(41:29):

Yeah, last week, I think I coined the term markets demand free men, and I used that comment on a friend's blog recently in a sense of defending the tariffs on China, and a guy who goes by the nom de blog of extreme libertarian, and he is, I think it's almost to the point of anarchy, and he came back and said, oh, no, no, you are benefiting. You benefit from China's slave labor. So that's a good thing. It's like, well, does not moral behavior my benefiting from slave labor. That's a good thing. You don't have a problem with that. He says, no, I don't. The market will correct itself after a while, the slaves will revolt. A number of people thought that was kind of like off the charts, but I don't know. The invisible hand of Adam Smith eventually caused slaves to revolt so that we don't need tariffs.

Todd Sheets (42:31):

Well, that's the reason we went down this with China in the first place was the expectation was that if we allowed them into the global markets and allowed their people to begin to experience upward mobility, which happened then they would demand social and political freedoms as well, and it would lead to democracy, which they did

Ed Bonderenka(42:51):

Unfortunately not lead to democracy. But you mentioned Tiananmen Square before.

Todd Sheets (42:56):

Exactly, and that's the thing that we missed as we talked about. We missed the bloodstains on the streets and the walls of Tiananmen Square, which was effectively the Chinese party saying this was actually before all this got going. This was in the late eighties, what they were effectively saying to their own country. And to some extent the world, although we miss the message, is we will let these things go as long as it's in the interest of increasing the power and the control and the prestige and influence of the Communist Party, but no further than that. And so there have been good things that happened. Many people in China have been raised up out of subsistence levels of poverty. And if the Communist party had either gone away or somehow become, like I said, a trusted trading partner and a reliable ally, that would be great.

(43:54):

But they haven't, and I don't think totalitarian regimes ever will because in order to continue to repress the masses of people, you have small bodies who are in control of groups, and if you have a small group of people that are going to continue to control a billion people to the benefit of this smaller body who has the levers of the state and the military under their control, ultimately they're going to have to appoint hardliners who want to maintain that status because that group of politicians in control and those groups of military leaders who are sustaining that control, if they back down, they will lose it. That's what ultimately happened with the Soviet Union. And so I think the unfortunate thing is it's just, I can't think of an example in history of a totalitarian regime that somehow then decided, oh, we're just going to do the best thing for the people. They gave up their control and power without a battle or a fight of some kind and let the people amass and take control.

Ed Bonderenka(45:10):

Wait a minute, did that not happen with the collapse of the Soviet Union?

Todd Sheets (45:16):

It happened because we forced them into that situation and because a non hardliner, we had this unique situation where Gorbachev came in, he took a different approach and basically said, yeah, look, we can't keep up with Reagan's defense buildup. It's driving us into the pits. And so then they did let go at that point under duress, under the duress of the Cold War military buildup that Reagan enacted and that kind of thing. But it didn't happen by letting them into the marketplace

(45:50):

So that they could trade with us and lift the wealth and wellbeing of their citizens up. So I just think unfortunately, good things have happened, some for the Chinese people, some for us in being able to buy these products at lower prices and save money and create efficiencies and that kind of thing. But at the same time, what we have done is reinvigorated and reenergized the Communist Party, their GDP is now almost two thirds of ours, and they are using it to be a global adversary instead of a global ally. And I think we've got to curtail that trend. In that case,

Ed Bonderenka(46:33):

It might be a bit simplistic, but when I talk to people who have iPhones, I say, oh, you don't mind, that's slave labor phone. I mean, I have a Samsung made in South Korea or some under the auspices of a corporation that works in the West as opposed to a corporation that depends on Uyghurs. The Chinese Muslims who are in slave labor camps is just pretty demonstrable for this cheap labor. In other words, it comes to a point where I think people have to make a moral decision about their point of purchase regardless of the pricing, besides just the buy America first movement, which I'm all about, but there's times where I'm willing to buy from Taiwan. I'm willing to buy from South Korea. Maybe they don't make what I want here, but I'd rather buy from one of those two countries than from a totalitarian state like China.

Todd Sheets (47:28):

Well, look, I think that's a great point, and it's a very admirable approach to take with things, but we also have to remember that there's an extraordinarily large part of the population here and around and especially around the world that can't afford the luxury of those kinds of decisions. They're living off of incomes that they basically, they have to go to the store and get the best deal that they can get.

Ed Bonderenka(47:57):

Okay, finish on that thought. We have 30 seconds.

Todd Sheets (48:00):

Yeah, so I'll just finish that. I mean, I just think a lot of what drives consumption is driven by people who don't have the option of mixing moral decisions in with their purchase decisions. They're trying to feed their kids and get by, and so they've got to buy the best value available to them under the system that we're operating in.

Ed Bonderenka(48:23):

Okay, thanks folks. We've been talking to Todd Sheets, the author of 2008, what really happened, and thanks for joining us. And Todd, thank you. And Derek, thanks for producing and let me know we have 12 seconds left America. Bless God.